Global Investor Roundtable: 2023 Predictions on What’s Next for VC & Startups Across the World
In 2022, the world faced an increasingly volatile environment — from world conflicts, climate change and energy crises to inflation and covid aftershocks. The uncertainties of the global geopolitical and macroeconomic landscape have trickled down to the world of tech, startups and venture capital in a year marked by mass layoffs, suppressed funding appetite, Musk’s Twitter takeover and an FTX meltdown.
While that’s quite a lot… the optimists in us can’t overlook the positives.
In 2022, major milestones were hit in global health with the first COVID pill and Malaria Vaccine, in energy with a step forward in nuclear fusion, in work with the return to the office (hybrid or otherwise), in tech with the explosion of generative AI (think OpenAI’s DALL-E & ChatGPT) and in supply chain diversification (like Apple’s manufacturing move to India or new chip factories in places like Arizona) — an important step after the supply chain woes of 2020.
While VC startup funding may be down from the record breaking 2021, 2022 was still the 2nd highest year on record (according to Fortune), companies are now laser focused on building more sustainable businesses and hiring is easier than ever. Additionally, Venture Capitalists raised $151B in new funds. While not evenly distributed with leading VC brands accounting for a large percentage of money raised, this points to record amounts of dry powder ready to be deployed in the years to come.
At Cathay Innovation, we saw the final close of the Cathay Africinvest Innovation Fund, a €110M pan African investment vehicle, along with the closing of our Cathay Ledger fund focused on Web3 and Fund III — our latest marquee fund targeting €1B dedicated to the global, sustainable transformation of industry and society. Now, as we embark on a new year the annual question remains — what’s next? As an investment firm that is truly global in nature, we asked our teams on the ground across regions — from North America and Europe to Asia — what are the major trends in store for 2023?
Global Outlook: Globalization, the Next-Gen VC Playbook & Sustainable Transformation
MINGPO CAI, FOUNDER & PRESIDENT, CATHAY CAPITAL:
Globalization Remains Despite Decoupling of Economies. As a major impact of the covid crisis and its aftermath, we are increasingly seeing the decoupling of economies in terms of growth, debt and even inflation. However, while major companies will certainly adjust their industrial base and the organization of production facilities, globalization is a fact and will remain so. Value chains cannot be unraveled and simply reinvented in a few months. However, some companies will reorganize as they prioritize minimizing exposure to geopolitical risks, reducing energy costs as well as environmental footprint. Stability and sustainability are taking over cost and efficiency.
Hear more from Mingpo in his 2022 Investor Letter.
DENIS BARRIER, CO-FOUNDER & CEO, CATHAY INNOVATION:
The Next-Gen VC Playbook: Combining global VC, emerging startups & industry to activate the sustainable transformation flywheel. In the next ten years, all industries face massive change as modern digital infrastructure and platforms better link products, customers and the wider value chain. As a result, today’s seemingly well understood markets will be redefined and the companies who cope well with digital transformation will have the opportunity to lead much larger markets than ever before.
With deeper collaboration between startups and corporations, creating symbiotic relationships on the path to digital transformation, we’ll see more flexible and innovative business models, at scale, on both sides. This new phase will take us from open innovation to open transformation. And the new generation of companies, which will be larger and built more sustainably from the ground up, has the potential to have a much greater impact on industries and society as a whole.
Experiential marketing will transform retail. Selling a product without a digital experience alongside it in 2023 will no longer be a viable business model. These experiences are defining the future of retail since they put the consumer at the center of the experience rather than the product.
Europe: Back to Unit Economics, Talent, Consumer Essentials, Web3 Basics and the “S” in ESG
The EU Start-up ecosystem is stronger than ever. The new year will be a crossroads for startups in the EU that have had access to unprecedented amounts of investment capital over the last decade and a good ecosystem is now in place. While it will be harder to raise capital in 2023, there’s a flood of early-stage startups emerging all over Europe and the entrepreneurial spirit is alive across the continent.
- Denis Barrier
COSTANZA CARISSIMO, INVESTMENT DIRECTOR | BERLIN
Investment will continue to pour into European startups while investors will likely focus more on core geographies. VCs still have a lot of dry powder. As valuations are now stabilizing at lower levels, it provides the required visibility for investors to pour money again into the ecosystem, especially for Seed and Series A. However, investors will likely focus more on their home turf as they become more prudent with the cost of capital and want to meet in person again but fly less.
Impact investing will focus more on Social. Climate Tech is a MegaTrend that will continue to attract investments to address the challenges of climate change and energy consumption. However, it has become overheated in terms of valuations, and we believe both generalist VCs, as well as new emerging dedicated VCs, will pay increased attention to the S and G in ESG. Social impact topics such as social mobility, fair access to healthcare and education, the protection of vulnerable parts of the population and D&I, will all gather steam.
MARION GRÉGOIRE, VICE PRESIDENT | PARIS
Refocus on cash & unit economics. While growth was the key focus in 2021 with massive investments from VCs coming in to fund fast-growing startups, 2022 was more about unit economics. This is likely to continue to be the case in 2023, with startups shifting their focus further from growth to profitability, and adopting wiser cash management strategies. As an illustration of this trend, while the overall tech industry has suffered from many lay-offs and most hiring plans have been frozen, there is still a lot of open positions for VP finance and CFOs at startups.
Consumers to refocus budget on essentials in times of financial pressure . This could impact many consumer facing businesses. For instance, while alternative meat and proteins have gathered a lot of interest from both VCs and consumers over recent years, with the plant based meat market growing at double digit rates, such innovative products might suffer from cost arbitrage if the alternative comes with a higher price for the customer (which is often the case with plant-based alternatives). The current environment will continue to support the growth of platforms mindful of customer purchasing power, such as second-hand platforms.
VICTOIRE LAURENTY, VICE PRESIDENT | PARIS
Talent recruitment will remain key despite downsizing within large companies but also startups that have heavily recruited. This may impact the market positively with the creation of new entrepreneurial ventures — with the emergence of “startup mafias” in Europe — but also make it easier to recruit the right profiles for early-stage companies in need.
Fintech on the rise in Europe. Embedded finance will continue to extend product ranges and distribution channels (traditional retailers, SaaS, marketplaces and platform, Telco, etc.). Maturing products are deposit, payment, lending, BNPL, etc., and new products will include insurance, tax and accounting, pre-paid cards, etc. Embedded finance enablers will be multiplying as well in Europe and well-established tech players will be entering the market (e.g., Adyen offering an embedded finance product, Stripe, etc.)
MARGUERITE DE TAVERNOST, VICE PRESIDENT | PARIS
Web3 will go back to its core philosophy — focusing on security & transparency. Are Web3 & cryptos a revolution or an illusion? A lot of people are leaning towards the latter right now, but it is a long-term game and we have seen “crypto winters” in the past. We see a real opportunity to invest in the companies contributing to the setup and reinforcement of the technology itself, to make sure the fundamentals are strong and to strengthen the infrastructure, but also in some companies specialized in DeFi (decentralized finance) and in improving the UX to help people navigate Web3 better.
US: SaaS Crunch, Gen-Z Re-Commerce, a Shift in Fintech, Diversification & a Covid Mindset Reset
SIMON WU, PARTNER | SAN FRANCISCO
Fintech will be focused on quality and keeping fraud to a minimum to improve unit economics. The years of easy money made for an environment focused on acquiring the most customers, the fastest is over. Interest rates have changed the game. Money is now scarce.
Fintech will shift focus to financial inclusion. More products and services will be created to serve those that earn less than the national average, especially as interest rates stay high. Covid has widened the wealth gap and consumers will focus on keeping costs down.
Race to acquire Gen Z customers. The whole world will be turned upside down trying to get the attention of GenZ. We will see new startups emerge with innovative solutions to attract this market, noticeably with content.
“Re-Commerce” will become a mantra in 2023. Gen Z cares intensely about the environment. As a result, many are willing to buy old things or simply buy less. A new wave of startups will come onto the scene to help manage assets that are more mission-oriented, especially as brands are forced to pick a side.
SaaS Crunch takes off in 2023. SaaS crunch is coming in 2023. We’ll see enterprises consolidate the vendors they work with as they start to determine if it doesn’t make sense to point solutions across their stack.
MARK WOODS, HEAD OF CATHAY PRIVATE EQUITY NORTH AMERICA | NEW YORK
The robust “Covid” era of 2H 2020 and 2021 will be viewed in hindsight as a mirage. After the initial shock of lockdowns and incredible uncertainty in the first half of 2020, a broad swatch of companies and markets enjoyed great success from 2H 2020 through 2021; this era was capped with fourth quarter 2021 US GDP growth of 6.9%, while 2021 GDP growth was the fastest since 1984. But in hindsight, tremendous fiscal stimulus combined with lockdowns provided significant distortions to the natural state of the economy. In Q2 of 2022, we entered the “Great Unwind” of this prior period. The pain of central bank tightening actions to dampen inflation will provoke more skeptical views of that moment in time of seeming strength and “new normal” that was not to be. Covid winners have lost steam; covid losers have gained steam.
Diversification will take on enhanced meaning and appreciation in smaller private companies. With so many recent shocks around supply chain, lockdowns in the West and then in China, distortions to the economy from Covid and then from fiscal stimulus, and then from the Great Unwind, smaller companies will have an enhanced appreciation for diversification as a theme throughout their businesses — customer diversification, end market diversification, supply chain diversification, even financing diversification, etc.
Reshoring of manufacturing capabilities and capacity will continue to be en vogue. As many companies have been stung by the supply chain fiasco of 2021/2022, there will be a push at a micro / Company level to restore (or at a minimum, to diversify supply chains and suppliers to include an element of reshoring); while at the macro / government level there will be continued push to bring jobs and manufacturing back stateside.
Asia: Energy Transition, Wearables, Enterprise Austerity & Meta Crickets
We will see a massive investment in the Chinese energy transition. While China still depends on coal for 70% of its energy, they’re quickly transitioning to cleaner burning technologies to power the country. In 2023, investors will pour more money into new energy technologies that will decrease China’s dependence on fossil fuels. This will lead to new waves or energy technologies that will come from China that will quickly find international buyers as the world races for energy efficiencies.
- Denis Barrier
RAJIVE KESHUP, INVESTMENT DIRECTOR | SINGAPORE
Wearables will have a moment. A renewed interest in wearables (mostly through digital glasses) will create key demand spikes. We may see double-digit percent growth of glasses connected to the internet in 2023, giving a boost to AR tech.
The cost of solar panels will go less than $1 per watt. There will be a key breakthrough point in climate tech where the cost of PV panels will drop to below a dollar resulting in broader adoption of solar across the globe.
Enterprise sobriety is the name of the game in 2023. Enterprises will focus on driving more with a lot less — essentially turning this into a catalyst moment for systems-based AI and data-driven decision-making.
Content and commerce will collide. Think TikTok Commerce but on steroids.
You will be watched. The pervasive and increasing role of monitoring tech in the workplace will create controversy. Ultimately, this monitoring will give way to a shift in AI and further workforce reductions.
We won’t see any metaverse breakthroughs. The theoretical next iteration of the internet will continue on its highly conceptual path with no real use cases in 2023.
More from Rajive and the SEA team in their latest article: Industry Insights: 8 Investment Sectors that Thrive Through Recessions
Parting Thoughts from the Cathay Team
Looking towards 2023, we remain committed to working with innovators everywhere — connecting entrepreneurs, investors to executives at the world’s largest corporations. Together, we can make some of these predictions a reality — fueling digitization and innovation (at scale) that can positively transform industries, society and the day-to-day lives of people across the globe.
